Redundancy while on long-term sick leave: your entitlement, and what your settlement agreement should cover

Can you be made redundant while off sick long-term?

Yes, provided the redundancy itself is genuine: a real reduction in need for work of a particular kind, decided on proper business grounds. What must not happen is your absence, or a disability behind it, becoming the real reason you specifically are selected. Where it does, the dismissal is likely to be unfair and, if a disability is involved, discrimination under the Equality Act 2010 as well, whatever the paperwork calls it.

Notice pay once your contractual sick pay has run out

Your statutory or contractual notice period (whichever is longer) still applies to a redundancy dismissal given while you are off sick. The general rule under the Employment Rights Act 1996 ss.87 to 88 is that you are entitled to your normal pay through your notice period even if your contractual sick pay has already run out and you would otherwise drop to Statutory Sick Pay or nothing. There is a specific carve-out, s.87(4), that can affect this in certain circumstances; the precise scope of that carve-out on the facts of a long absence is genuinely one to check rather than assume, and this page will be updated once that position is confirmed. Do not accept a notice calculation at SSP rate without having it checked.

Holiday accrual while off sick

Statutory holiday continues to accrue while you are off sick, long-term included, under the Working Time Regulations 1998; being unwell does not pause it. If your accrued statutory holiday was not taken because of your absence, it should still be paid out on termination, and a settlement agreement should account for it as a day-one entitlement rather than something traded away in the headline figure.

Disability discrimination, stress and mental health

A physical condition, stress, depression or anxiety can amount to a disability under the Equality Act 2010 if it has a substantial and long-term adverse effect on your ability to carry out normal day-to-day activities (s.6 and Schedule 1). This is a legal test applied to your specific circumstances and medical evidence, not an automatic label attached to any diagnosis or any period of absence. If it is met, you are protected against discrimination arising from something connected to the disability (s.15), a failure to make reasonable adjustments (ss.20 to 21), and direct or indirect discrimination (s.13), all with no minimum service and no cap on compensation. If it is not met, the ordinary redundancy and unfair dismissal rules still apply and still protect you.

The income protection and ill-health retirement trap

This is often the single most consequential issue in this situation, and the one most worth having checked before you sign anything. If you are, or might become, entitled to payments under a group income protection (PHI) policy, or to ill-health retirement benefits under a pension scheme, ending your employment by redundancy or settlement can affect or forfeit that entitlement entirely, depending on the scheme's own rules and how the ending is characterised. Some schemes preserve a claim already in payment; others stop the moment employment ends, however it ends. Get the scheme rules and your insurer's or administrator's position on your specific case in writing before you agree to anything, not after.

What a settlement agreement should contain in this situation

Split every item into what you are owed regardless of any negotiation, and what is genuinely up for discussion. Never sign an agreement that treats a negotiable item, or an unresolved income protection or pension question, as if it must be settled on the terms first offered.

When the offer is too low

A redundancy where the real reason is your absence or a disability behind it is both unfair dismissal and disability discrimination, with no cap on the discrimination compensation and no minimum length of service needed to bring that claim. Together with an unresolved income protection or ill-health retirement question, that is real leverage, and a reason to have any offer checked before you sign rather than assume it reflects your full position.

Frequently asked questions